Real Estate Math
A Vermont investor paid $400,000 for a rental property and generates $32,000 net annual income. What is the capitalization rate (cap rate)?
A6%
B7%
C8%✓ Correct
D10%
Explanation
Cap Rate = Net Operating Income ÷ Purchase Price = $32,000 ÷ $400,000 = 0.08 = 8%. The cap rate represents the property's annual return on investment at a given price, assuming an all-cash purchase.
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